What does blockchain technology mean for the procurement industry?

Lee Pruitt, CEO of InstaSupply discusses the benefits of blockchain in procurement

This is a contributed piece by Lee Pruitt, CEO of InstaSupply

It’s easy to treat new technologies with a degree of scepticism. After an initial wave of excitement and expectation – accompanied, invariably, by many botched rollouts and protracted implementations – many of these supposedly game changing advances become bitter disappointments.

But this isn’t necessarily the technology’s fault. Indeed, many of these advances are – when divorced from the Gartner hype cycle and placed in their proper context – exactly as exciting and game changing as they seem, if not more so. Blockchain is a high-profile victim of this phenomenon: as a distributed ledger technology that promises faster, more secure payments, many industries have been exploring its possibilities.

Procurement is no exception. And while blockchain technology may have limited application in other professions, in this one, it looks set to live up to the hype. As a means of reducing costs, improving efficiency, controlling fraud, and boosting transparency, it has tangible, real-world benefits for procurement functions - whatever the market or business they work within.

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If you run a procurement department, here’s what you need to know.


Blockchain automates trust

Trust is the cornerstone of every business relationship. On a fundamental level, you need to believe that the other person is who they say they are – and they need to believe the same of you.

In an age of phishing, malware, and general cyber security attacks, however, this seemingly simple principle becomes complicated. Login details can be stolen and turned to criminal ends; high-level executives can be impersonated by hackers, who then persuade other parties to release vital funds; the sheer scale and variety of crime is incredibly hard to counter.

Blockchain provides a means of automating trust. By using permanently retained historical data to authenticate everyone involved in a deal, each side can be assured of the other parties’ trustworthiness: the seller and buyer alike are always who they say they are, and the product is the right product. What’s more, because prices cannot be modified, invoices will effectively be rendered obsolete.

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This greatly simplifies the complicated, multi-faceted transactions that make up modern supply chains – maximising security and reducing the risk of fraud.


Blockchain is fast

Procurement functions will benefit from the speed and efficiency of blockchain technology. For one thing, it’s fully digital: by taking the more time-consuming elements of a conventional transaction out of the equation, you immediately save time and resources that would have been spent on these tasks. Shared access databases mean that it’s no longer necessary to manually scan invoices – dramatically accelerating the reconciliation process as all parties are allowed to view the same transaction.

Blockchain effectively cuts out the middlemen. By removing all intermediaries, it makes the processing of payments and transactions much faster: purchase order data can be exchanged on the blockchain at a far speedier pace than current levels will allow. This technology can also identify the nearest and most cost-effective vendors: decreasing lead and work time, and improving your operational efficiency.


Blockchain creates strong audit trails

Blockchain technology stores every detail of every transaction at every level of the supply chain. This will – as mentioned above – facilitate greater fraud control, and it will also offer transparency into issues of legality such as money laundering and the use of child labour.

And though it’s a digital technology, blockchain will also assist with the tracking and recording of physical items. As they are transported across local and international borders, they can be identified at each location – creating a strong and fully documented audit trail. This kind of end-to-end visibility ensures that delays are rare and that missing items are found and allocated to supply routes more easily. This allows you to manage and optimise these supply routes with maximum efficiency – ensuring that no space is wasted and no customer disappointed.

The full potential of blockchain technology is hard to articulate in one article, even when we’re just talking about the procurement and supply chain management industries. The impact it has on other markets will vary, but they may well feed into the benefits it offers yours. This is a good thing, but it makes a full impact prediction a somewhat complicated task.

Nonetheless, even if we can’t quite gauge its full significance, it’s clear that blockchain will have a significant influence on the procurement industry. The advantages of being able to streamline business processes, secure payments, and lighten your workload shouldn’t be understated. Do the research, ensure that your business is using it correctly, and you’ll benefit – today, and in the future.